Nigerian banks are increasingly calibrating their exposure to government securities against private-sector lending, with some lenders preferring sovereign investments to taking on credit risks associated with businesses, the S&P Global Ratings has said.
The ratings agency explained that although the recapitalisation of the Nigerian banking sector had strengthened banks’ balance sheets, economic uncertainties and the need to preserve newly raised capital were influencing their lending decisions.
The Managing Director, National Ratings & Analytical Solutions, Africa, and Country Head for Africa at S&P Global Ratings, Samira Mensah, disclosed this in an interview with THISDAY on the sidelines of the S&P Global Africa Summit held in Lagos.
“Generally speaking, recapitalisation, together with the objective of preserving the capital raised, is underpinning banks’ lending stance. We have also seen banks calibrate their exposure to government securities, which represents indirect lending to sovereigns, through their investment securities portfolios, depending on prevailing interest rates and yields. As you know, sovereigns are not risk-free investments.
“However, depending on the economic environment, banks may sometimes prefer to take sovereign risk rather than private-sector credit risk. The situation therefore differs from one market to another,” she said.
Speaking on the resilience of African banks and the concentration of risks facing the sector over the next 12 to 18 months, Mensah said the slow growth in loan books across several markets, including Nigeria, was partly attributable to domestic and international macroeconomic uncertainties.
She explained that these uncertainties had led to a pause in lending in some markets, limiting the build-up of non-performing assets in the banking sector.
The S&P Global Ratings executive observed that many Nigerian banks had expanded their operations across Africa, making them pan-African institutions that assessed risks from a broader continental perspective.
According to her, their presence in different markets allows them to diversify their exposures and adjust their risk appetite in response to the economic conditions in the countries where they operate.
“Many Nigerian banks are pan-African institutions, so they assess risks from a broader perspective across the continent. They diversify and calibrate their risk appetite according to the different markets in which they operate,” she added.
The development also comes as Nigerian banks continue to operate in an environment where interest rates, government borrowing requirements and macroeconomic uncertainties shape investment and lending decisions.
Beyond Nigeria, Mensah said the resilience observed in African banking systems was largely supported by reforms undertaken in different markets. However, she stressed that the risks and lending conditions varied from one country to another.
She also noted that banks’ exposure to sovereign securities and private-sector credit was determined by prevailing economic conditions, interest rates and the yields available on investment instruments.
Meanwhile, S &P Global in its latest report stated that Nigeria’s efforts to bridge its infrastructure deficit and sustain economic recovery face growing challenges from elevated financing costs, inflationary pressures and limited access to long-term institutional capital.
The report, which examined financing conditions across African markets and the prospects for scaling up infrastructure investments through blended finance, identified rising global borrowing costs, energy supply disruptions and food price pressures as significant risks to economic stability across the continent, including Nigeria.
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In its report titled, ‘From Project to Platform Financing: Scaling Up Investments in Africa Through Blended Finance,’ S&P advocated a transition from individual project-based financing to larger, standardised investment platforms capable of pooling infrastructure assets and attracting substantial capital from international institutional investors.
The recommendation comes as Africa faces an annual infrastructure financing gap estimated at between $60 billion and $100 billion, while official development assistance to sub-Saharan Africa declined by 26 per cent in 2025. The Organisation for Economic Co-operation and Development projects a further 12 per cent decline in 2026.
S&P noted that Africa’s blended finance market had expanded fivefold over the past decade to approximately $10 billion annually, with West Africa accounting for an estimated 40 to 50 per cent of the total.
However, the agency said the existing financing structure remained inadequate to meet the continent’s infrastructure requirements, partly because many projects were too small to attract major international investors.
According to the report, institutional investors typically require minimum debt issuances of at least $100 million to justify the operational costs associated with investments, whereas African infrastructure projects frequently fall below this threshold.
For Nigeria, the challenge underscores the importance of developing deeper domestic capital markets and expanding financing mechanisms that can mobilise pension funds, insurance companies, banks and international asset managers.
S&P specifically highlighted the role of InfraCredit Nigeria, which provides guarantees for domestic corporations issuing local-currency debt.
The agency disclosed that InfraCredit currently guarantees $280 million in local-currency bonds, representing approximately 15 per cent of Nigeria’s outstanding corporate bonds.
Although describing this as a significant share of the domestic market, S&P said the volume remained small relative to Africa’s infrastructure financing requirements, underscoring the need to expand the solution.
It explained that guarantees could improve the creditworthiness of infrastructure investments, reduce risks for private investors and encourage greater participation by institutional capital.
The report also emphasised that foreign exchange mismatches remained a major concern for projects generating local-currency revenues but carrying foreign-currency liabilities. It identified deeper domestic capital markets as the most efficient means of mitigating such risks